Qualified Charitable Distributions or QCDs are a tax effective way for clients to give. They allow individuals 70½ or older to make tax-free donations to nonprofit organizations directly from their IRA.
Before we detail why QCDs matter, we first need to discuss Required Minimum Distributions.
Brief Overview of RMDs:
As we will go further in depth over in a future blog post, RMDs are annual distributions required by the IRS to be taken from tax deferred accounts starting at age 73 for those born before 1960, or 75 for those born 1960 or after. Because these assets were not taxed when contributed and have grown tax free, withdrawals from these accounts are taxed as income. For retirees that have accumulated a sizeable amount of assets in tax deferred accounts, RMDs can create a higher level of income.
What is a QCD?
A QCD allows someone over the age of 70½ to remove funds from their IRA tax-free, so long as the funds are going to a qualified nonprofit organization. Currently the individual annual limit for QCDs is $108,000.
Why Give using a QCD?
Beyond the intangible benefits of giving, there are two main reasons why clients should consider a QCD as a part of their gifting strategy.
QCDs can help satisfy RMDs
As mentioned earlier, clients who are RMD age and have tax deferred IRAs will have an increase to their income. But for clients that don’t need the extra income, they can utilize a QCD to help satisfy their RMD. Take for example a client who has an RMD of $70,000 for 2025. If they only need $60,000 from their IRA to live off for the year, instead of taking the full $70,000 distribution, they could give the unneeded $10,000 to a nonprofit of their choice and not pay tax on that portion. They would still satisfy their RMD in that case.
QCDs Reduce Taxable Income, Even Without Itemizing
When the Tax Cut and Jobs Act was passed in 2017 the standard deduction almost doubled for every tax filing status. As a result, the amount of tax filers that itemized their taxes decreased from roughly 31% to about 10%. The One Big Beautiful Bill increased standard deduction amounts even greater. Because most taxpayers now claim the standard deduction, rather than itemizing, traditional charitable deductions don’t reduce their taxable income. Since QCDs aren’t included as taxable income, clients can claim the standard deduction AND lower their overall tax bill through charitable giving.
How WJ Interests Can Help
One of the most common mistakes we’ve seen is clients taking their full RMD and then donating cash afterward. This increases their taxable income unnecessarily, often leaving them with a higher tax bill — and sometimes less to give.
We don’t believe clients should give their money away exclusively for tax benefits. However, we do believe that for those that are charitably inclined, QCDs can be an effective tax planning tool. At WJ Interests we specialize in incorporating what is important to our clients in their financial plan. If you’re approaching RMD age or already taking distributions, we’d be happy to discuss whether QCDs should be part of your gifting strategy.
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